Report card: How have NPS pension fund managers performed?The National Pension System or NPS (All Citizen Model) now has about nine lakh subscribers. This is still much smaller than the roughly one crore subscribers in the APY and the 60 lakh odd subscribers in Central and State Government NPS combined.

However, in the models other than ‘All Citizen’, you have no choice. In case of Central Government, State Government and APY, the government chooses both the asset allocation and the fund managers. The asset allocation is up to 15% equities, 45% in corporate bonds and up to 50% in government bonds.

The money is split equally between public sector managers LIC, UTI and SBI. The resulting returns are somewhat disappointing – which is 9.4% (annualised) over the past five years, 7.7% over the past three years and 5.8% over the past year (as per data as on Feb 28th, 2018). In the corporate sector NPS model, the employer chooses the fund managers and asset allocation. You simply take it or leave it.  

However, in the NPS all-citizens model, you have two choices to make:

  1. The split between equities, government bonds and corporate bonds
  2. Which fund manager will manage your pension corpus

You can delegate decision number 1, to one of the three NPS lifecycle funds. These will set your asset allocation according to your age and risk preference. You read more about these here. However, you still have to choose a fund manager from amongst the eight available.  

A look at performance over the past five, three and one years gives us some interesting results. The top-performing fund manager in Equities over the past five years in equities is UTI Retirement Solutions at 15.78%. It is followed by Kotak Pension Funds at 15.14%. UTI was also the top equities performer in the past three years.

However, UTI’s corporate and government bond plans have lagged behind their peers. In the NPS, you cannot choose different fund managers for equities and bonds, unlike mutual funds. So you have to basically decide, who is offering the best deal, across all three asset classes.

In our analysis, we used two types of portfolios. The first portfolio invests 50% in equities and the rest split equally (25% each) in government and corporate bonds. We used 50% because this is the maximum allowed in equities currently under NPS – Active Choice. The second portfolio is a simple equal split between all three asset classes. The results are as follows:

Asset Mix 1 year 3 years 5 years
50:25:25 mix 10.19% (HDFC) 8.72% (Kotak) 12.52% (UTI)
Equal Split 9.25% (HDFC) 8.87 (Kotak) 11.52% (ICICI)

Data as on 6th April 2018, Source NPS Trust

In summary, there is no clear answer. UTI looks like a good choice for someone who wishes to tilt heavily towards equities. For those who prefer a more conservative equal split, ICICI comes out on top with an 11.52% return over the past five years. Kotak and HDFC have done well in recent years. However, it may be too early to say that they are distinct outperformers. We shall wait and watch.

You can look at the detailed returns data in the table below:

5 Year Returns
Manager Equities Corporate Bonds Govt.Bonds
SBI 15.03% 9.58% 9.21%
UTI 15.78% 9.60% 8.92%
Kotak 15.14% 9.87% 9.20%
Reliance 14.30% 10.01% 9.28%
ICICI 15.05% 10.09% 9.41%
LIC NA NA NA
HDFC NA NA NA
Birla
3 Year Returns
Manager Equities Corporate Bonds Govt.Bonds
UTI 8.61% 9.04% 8.13%
Kotak 8.27% 9.54% 8.80%
Reliance 6.81% 9.38% 8.73%
ICICI 7.39% 9.69% 8.55%
LIC 6.97% 9.12% 9.33%
HDFC 8.52% 9.30% 8.35%
Birla
1 Year Returns
Manager Equities Corporate Bonds Govt.Bonds
UTI 12.75% 7.06% 6.80%
Kotak 12.44% 7.72% 7.49%
Reliance 9.88% 7.50% 7.80%
ICICI 11.22% 7.41% 7.69%
LIC 10.40% 7.09% 8.24%
HDFC 13.00% 7.38% 7.37%
Birla

Data as on 6th April 2018, Source NPS Trust

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.